How to Calculate Markup Price
What Is Markup Percentage?
A markup percentage is the amount of the cost of an item that you add
on to create the selling price. Many retailers use markups to set their
selling price. However, some confusion comes in when there is a
reference to margin along with markup. A margin is different from a
markup. To explain a markup, lets use an example.
You purchase a box of paper that cost one dollar. You aim for a profit of 50%. By multiplying the cost by 50%, you get 50 cents. Add that to the cost that you paid to purchase the box of paper, now the total is one dollar 50 cents. This is the selling price of the box of paper. Therefore, your markup percent is 50%.
To look at a margin, let's use the same example. A 50% margin means that half of the selling price is your profit. Therefore, using the example above, to get a 50% margin on the box of paper we would have to sell it for two dollars. Margin is defined as the percent of the final selling price that is profit.
Again, markup is the amount over the cost of the goods that you add to
make the selling price. As seen above a 50% markup is less than a 50%
margin. The margin works somewhat backwards, taking the selling price
times the margin to reach the cost of the item.
In general, retailers use markup to set the selling price of an item but investors look at the profit margin at a total level, not an individual level. The amount of profit that a company is making overall generally determines the success of the business. Therefore, using the easier method of markup to set selling price on items and calculating an overall profit margin as a whole on total sales works well.
Calculating Selling Price using Markup Percentage
Before you get the selling price or target price, first you need to determine product cost and markup percentage. Then using below formula you can get the selling price. This mark up formula is based on product cost.
Selling Price = (Markup / 100% * Product Cost) + Product Cost
Suppose a cost to make a bag is $20. What is the selling price, if we want to markup the price by 30%?
Selling Price = (30% / 100% * $20) + $20 = $6 + $20 = $26
So selling price would be $26 and markup price $6.
You purchase an item for $10, and you want to markup the price 40%. At what price you should sell that item?
Product Cost: $10
Selling Price = (40% / 100% * $10) + $10 = $4 + $10 = $14
This example gives you a price markup of $4.
Calculating Markup Percentage - Faster Way
To calculate markup percentage in faster way you can use this formula:
Selling price = (100% + Markup) x Product Cost
Product Cost: $20
Selling Price = (100% + 30%) x $20 = 130% x $20 = $26
Product Cost: $10
Selling Price = (100% + 40%) x $10 = 140% x $10 = $14
Calculating Percentage Markup
To calculate percentage markup, you need determine product cost and selling price. Then using below formula, you can get the percentage markup. This mark up formula is based on product cost.
Markup = (Selling Price - Product Cost) / Product Cost * 100%
If you purchase an item for $15 and sell it for $20. Calculate your percentage markup!
Markup = ($20 - $15) / $15 * 100% = $5 / $15 * 100% = 33.33%
So your percentage markup would be 33.33%
Product cost is $10, and you markup the price by $3. Calculate your percentage markup!
Markup = $3 / $10 * 100% = 30%
Video: How to Calculate Markup Percentage
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